Tag Archives for " Agreed Upon Procedures "

SSAE 18 is effective on May 1, 2017, and changes the Attestation Standards.

Do you issue any attestation reports such as agreed upon procedures? If yes, then be aware of the recent changes from the Auditing Standards Board (ASB). The ASB has clarified the Attestation Standards. The ASB did the same with the audit standards a few years ago; that change resulted in the AU-C (clarity) designations for audit standards.

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The re-write of the Attestation Standards culminated in the April 2016 issuance of SSAE 18.

SSAE 18 supersedes all Attestation Standards other than:

AT section 701, Management’s Discussion and Analysis (MD&A). AT section 701 will not be clarified because practitioners rarely perform attestation engagements to report on MD&A; it will be retained in the attestation standards in its current form. AT section 701 has been renumbered as AT-C section 395.

Also be aware that AT section 501 An Examination of an Entity’s Internal Control Over Financial Reporting That is Integrated With An Audit of Financial Statements was moved to the auditing standards as Statement on Auditing Standards (SAS) No. 130, as An Audit of Internal Control Over Financial Reporting That is Integrated With An Audit of Financial Statements.

Just as the ASB did with the audit clarity standards, a “-C” is added to the clarified Attestation Standards. So the clarified attestation standards are identified as AT-C. The clarified standards are written using ASB’s clarity conventions, including:

Objectives for each chapter

Definitions in each chapter

Separating requirements from application and explanatory material

Using various formatting techniques such as bulleted lists to enhance readability

When applicable, including additional considerations for governmental entities or smaller less complex entities

Attestation Levels of Service

The clarified standards provide for the following types of attestation services:

Service

AT-C Section

Report Type

Examination

205

Opinion

Review

210

Conclusion

Agreed Upon Procedures

215

Findings

Sample report excerpts follow:

Examination Report on Subject Matter; Unmodified Opinion

In our opinion, the schedule of investment returns of ABC Company for the year ended December 31, 2020, is presented in accordance with the ABC criteria set forth in Note 1 in all material respects.

Review Report on Subject Matter; Unmodified Conclusion

Based on our review, we are not aware of any material modifications that should be made to the accompanying schedule of investment returns of ABC Company for the year ended December 31, 2020, in order for it to be in accordance with XYZ criteria set forth in Note 1.

Agreed-Upon Procedures Report

We obtained the accounts receivable subsidiary ledger as of June 30, 2017, from Topaz, Inc. We compared all customer account balances in the aged trial balance (exhibit B) as of June 30, 2017, to the balances shown in the accounts receivable subsidiary ledger.

We found no exceptions as a result of the procedure.

New SSAE 18 Requirements

Separates the review engagement procedures and reporting requirements from those of examination engagements (and highlights the similarities of reviews performed under the SSAEs and those performed under Statements on Standards for Accounting and Review Services [SSARS])

Requires the practitioner to request a written representation letter in all attestation engagements (the pre-clarity standards only required representation letters for certain engagements)

Changes the existing requirements related to scope limitations, indicating that based on the practitioner’s assessment of the effect of the scope limitation, the practitioner should express a qualified opinion, disclaim an opinion, or withdraw from the engagement

Eliminated compilations of prospective financial information from the attestation standards (the Accounting and Review Services Committee issued SSARS 23 to cover this service)

Effective Date

The guidance in SSAE No. 18 is effective for practitioners’ reports dated on or after May 1, 2017.

I am often asked, “should this be an agreed-upon-procedures (AUP) engagement or a consulting engagement?” (The question usually comes just after a client says, “I don’t need an audit. They cost too much.”)

So what’s the difference in an AUP and a consulting engagement?

Agreed Upon Procedures Engagement

The AUP option is more precise and is mainly composed of:

Procedures

Findings

An example follows:

Procedure – Agreed all January 2012 disbursements greater than $20,000 to checks that cleared the bank statement; compared the payee on each check to the payee per the check register.

Finding – All check payees agreed with the exception of check # 2394 for $45,000; the payee for this check was I. Cheatum, and the check register reflected a payment to King’s Supply Company.

Consulting Engagement

A consulting engagement–based on the AICPA Consulting Standards–is less precise and does not necessarily need to follow the procedure-finding format. There are no specific reporting standards for a consulting engagement, so a CPA can more easily design the engagement to meet various needs. The consulting standards are more flexible than the attestation standards (and the requirements for agreed-upon-procedures engagements).

A consulting report might address the following:

Reading of minutes

Interviews of individual employees

Flowcharting of internal controls

Summary of production statistics

Narrative of business goals and enterprise risks

As you can tell, there are no procedures and findings.

Which is Best?

It all depends on the purpose of the report. Consider the following:

Will there be external parties (e.g. creditors) placing reliance on the report?

Is the purpose of the report to add credibility to the information (by having the CPA attest to procedures and findings)?

If the answer to these questions is yes, then use the AUP option.

If there is no third party relying on the information, then a consulting engagement may be better. But always ask, “Who will receive the report?” The CPA needs to know who will read and potentially place reliance upon the report.

AUP Procedures (Not Appropriate and Appropriate)

The key consideration in performing an AUP is specificity.

Procedures that would not be appropriate include:

General review of inventory internal controls

Reading the minutes

Testing accounts payable

Procedures that would be appropriate include:

Examine every fifth journal entry in the month of May 2017 to determine if each is signed by the CFO.

Agree each balance on the May 2017 balance sheet to the general ledger.

Clarified AUP Guidance

For the new AICPA AUP guidance (including sample reports), click here. These standards are effective for reports dated on or after May 1, 2017.

I am the quality control partner for our CPA firm where I provide daily audit and accounting assistance to over 65 CPAs. In addition, I consult with other CPA firms, assisting them with auditing and accounting issues. Read my full bio…